The first government of independent India correctly decided that industrialising India was required to eradicate poverty and build a strong, self-reliant socialist nation. The strategy adopted was to achieve this objective through the public sector enterprises, instead of the private sector.
Prior to independence, the private sector had made progress, but its ability to grow further was controlled by the licensing and control system, as well as the monopolies law. The industrial policy framework was designed to ensure that there was no competition either in the public or private sectors. Government enacted laws and regulations, and created systems for the establishment and operation of public enterprises.
For various reasons, there were delays in completion of many projects, and in their reaching full capacity utilisation. The performance of the public undertakings was not evaluated according to the criteria normally applied to business undertakings. Thus, profits and return on capital employed did not have targets for undertakings. As a consequence, most enterprises did not generate internal surpluses that could fund expansion and modernisation of capacity, or investments in R&D to improve technology.
Hiccups of early days
Undertakings largely focussed on trying to meet production targets and to become model employers, but little attention was paid to quality assurance, increasing productivity, and reducing costs. Labour in an undertaking did not think that it had any responsibility for improving the performance of their company and relations with managements were adversarial.
As years passed, public undertakings were generally unable to create a self-sustaining ecosystem for growth, the quality and quantity of output were frequently less than the demand, and technology and productivity were below global standards.
The private sector did not fare much better either. The absence of competition and growth opportunities meant that there was no incentive to improve quality, productivity or reduce costs. Products became obsolete compared to what was being produced elsewhere. Supply chains were weak and unreliable. Management relations with labour were adversarial and often led to strikes, lay-offs and even violence. Manufacturing in India was very difficult, largely due to laws and regulations, and India was not seen as a country offering conditions for competitive manufacturing. Governments did little to make changes.
The first change happened in 1981. Maruti Udyog Limited (MUL) was established by the government to manufacture cars by entering into a joint venture with a technology partner. Suzuki Motor Co. of Japan and the government formed this joint venture. MUL had to comply with all the laws and rules applicable to the public sector. Despite these constraints, MUL was able to introduce a highly productive culture of management, where workers and management worked as partners.
Quality and cost became buzz words. For the first time, the focus of a company shifted to customer satisfaction. Realising the critical role of bought out parts, MUL broke with traditional practices and worked with vendors to create a robust supply chain. As a result, MUL became a company that had high productivity and quality, and it dominated the car market. Its cars changed the look on the roads and the driving habits of citizens. More and more women started to drive. In 1990, over 2,16,000 cars were sold in the country, of which MUL sold over 55%. The world saw that manufacturing in India could be very competitive.
Ease of doing business
While the years after 1991 had a huge impact on the growth of the car industry, the same cannot be said about all manufacturing in India. Despite the ending of the licensing system, and the removal ofrestrictions on foreign investment, manufacturing growth in the country still remained low. Doing business in India remained difficult due to inadequate reforms. The political climate was not very welcoming for private sector manufacturing, and the bureaucracy retained their earlier suspicion and distrust of industrialists and their profit making mindset.
It was only the new government in 2014 that started the process of making it easy to do business in India with wide ranging changes in laws, taxation systems, and other reforms. The importance and the role of private sector has been recognised, and the process of gradually winding down the mammoth and unproductive public sector has started. Foreign manufacturers are increasingly coming to India and the Production Linked Incentive scheme is a big attraction. The recognition of India’s potential in the knowledge economy, and the actions of the government have instilled confidence in investors. The future for manufacturing is bright after 75 years of Independence, thanks to the government’s attitude and policies.